New Delhi: The National Payments Corporation of India (NPCI) has deferred the implementation of the proposed Merchant Discount Rate (MDR) on select person-to-merchant (P2M) Unified Payments Interface (UPI) transactions until after Diwali. The new implementation date will be announced separately, according to NPCI.
The decision was taken by the UPI and Services Steering Committee on October 13, keeping the festive season in mind. The proposed charges were earlier scheduled to take effect from October 15.
Under the proposal, an MDR of 0.4% would apply to select P2M UPI transactions above ₹2,000. The fee would be borne by merchants rather than consumers, with a maximum cap of ₹300 for transactions of ₹75,000 or more. Payments between individuals and most everyday merchant transactions would continue to remain free under the proposed arrangement.
The proposed fee is intended to help fund the infrastructure needed to operate the UPI ecosystem, including cybersecurity, fraud prevention, system resilience and customer support. According to the Finance Ministry’s September FAQs, industry estimates put the annual cost of operating UPI at around ₹20,000 crore.
Since January 2020, MDR on RuPay debit cards and BHIM-UPI transactions has remained zero to encourage digital payments. The government has supported the ecosystem through incentive schemes, including a ₹1,500-crore programme for the financial year 2024-25 to promote low-value BHIM-UPI merchant transactions.
The proposed MDR has also faced opposition from sections of the merchant community and stakeholders in the digital payments ecosystem, who have raised concerns about its potential impact on small businesses and the adoption of digital payments. Critics argue that additional transaction costs could increase the financial burden on merchants, particularly small retailers, and may lead some businesses to reconsider accepting UPI payments for certain transactions. Supporters of the proposal, meanwhile, argue that a sustainable funding mechanism is necessary to maintain and strengthen UPI infrastructure. The debate over how to fund the digital payments ecosystem is expected to continue ahead of the revised implementation date.
The proposal has drawn criticism from opposition parties and trade bodies, which have questioned the introduction of charges on a payment system widely used for everyday transactions. Merchant groups have also raised concerns about the potential impact on small businesses and the possibility that additional costs could discourage some retailers from accepting digital payments. The government, however, has maintained that the MDR is a commercial charge intended to support the financial sustainability of the UPI ecosystem and should not be passed on to consumers.
